China policy and markets round-up: Economists upgrade China’s 2021 growth forecast, Vanguard hits pause on mutual fund application, Luckin seeks restructuring, equity deal
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China policy and markets round-up: Economists upgrade China’s 2021 growth forecast, Vanguard hits pause on mutual fund application, Luckin seeks restructuring, equity deal

GDP_adobe_575px_19Mar21

In this round-up, economists expect China’s GDP to grow at a faster pace than previously forecasted, Vanguard decides to take a step back from its plan to establish a wholly-owned fund management company in the Mainland, and Luckin Coffee pushes forward a debt restructuring and a potential equity investment deal.

The United Nations Conference on Trade and Development said on Thursday that China’s economy is likely to expand by 8.1% this year.

Institutions including Barclays and UBS this week upgraded their 2021 growth forecasts for China, following strong economic performance in January and February. Barclays bumped up its annual growth forecast to 9.4% from 8.4%, on stronger-than-expected momentum in exports and credit in the first quarter. UBS now expects China’s GDP to grow by 9% instead of 8.2%, on “stronger growth so far and better export demand going forward”.

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China’s real estate investment surged 38.3% year-on-year over the first two months of 2021, according to data released by the National Bureau of Statistics on Monday. The jump is from a low base, however, as property investment dropped by 16.3% in January and February 2020 following the outbreak of Covid-19 in the Mainland.

Last month, new property prices climbed in 56 of 70 Chinese cities compared to January, according to the NBS. Xuzhou recorded the highest monthly increase of 1.2%. Prices on second-hand homes were up 1.3%, 1.2%, 1% and 0.9% in Shanghai, Beijing, Guangzhou and Shenzhen, respectively.  

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China’s financial industry reported a 10.7% year-on-year increase in total assets to Rmb353.19tr by the end of December 2020, according to the People’s Bank of China (PBoC). Total assets at Chinese banks, securities firms and insurers rose 10.1%, 25% and 13.3%, respectively, on an annual basis.  

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The PBoC kept the one year medium lending facility (MLF) rate steady on Monday. It extended Rmb100bn of MLF loans to financial institutions at 2.95%, unchanged from its last operation. There were Rmb100bn of MLF loans due on the same day.

The central bank also conducted Rmb50bn of seven day reverse repo operations between Monday and Friday at 2.2%, versus Rmb50bn due this week.

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Five regulators, including the PBoC and the China Banking and Insurance Regulatory Commission, have banned micro-lending companies from providing online consumer loans to university students, according to a Wednesday notice.

The move is to protect university students’ legitimate rights, as some micro lenders collaborated with technology companies and inappropriately marketed online consumer loan products, enticing students to overspend or even fall into debt traps, the regulators said. 

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China should come up with a “financial stability law” and establish a working mechanism on financial stability across different industries and government bodies, vice central bank governor Liu Guiping wrote in an article this week.

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Vanguard has decided to halt its application to set up a wholly-owned fund management company (FMC) in China, the firm said this week. Instead, it plans to focus on developing its robo-advisory joint venture — called Bang Ni Tou, meaning “help you invest” — under a 49/51 partnership with Ant Group, the fintech arm of Alibaba Group Holding.

“At this stage, Vanguard believes it can provide more value to investors through the JV advisory service than by offering a select number of funds in what is already a fairly crowded mutual fund market,” the asset manager said in a statement, adding that it “greatly appreciated the opportunity” to participate directly in China’s retail fund market.

BlackRock obtained a fully-owned FMC licence in China last year, while JP Morgan Asset Management is looking to take full control of its onshore fund management joint venture. Others seeking market entry include AllianceBernstein, Neuberger Berman and most recently Schroders.

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China has increased its holding of US Treasury bonds to $1.095tr by the end of January, the highest since October 2019, from $1.072tr in December, latest data from the US Treasury department showed.

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The Ministry of Finance has allocated Rmb1.77tr of new issuance quota of special purpose bonds to local governments. At the annual parliamentary meeting this month, China officially assigned Rmb3.65tr of quota for full-year 2021.

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FTSE Russell is scheduled to provide an update, after the market close on March 29, on the planned inclusion of Chinese government bonds in its flagship FTSE World Government Bond Index (WGBI) from October 2021.

Standard Chartered expects FTSE to affirm the index inclusion. China’s weighting in the WGBI index will be around 5.2% after full inclusion instead of the previously estimated 6.5%, as FTSE announced last week that it will increase the minimum required outstanding size for older CGBs to be included in relevant indices, economists at StanChart wrote in a Tuesday note. They estimate passive inflows of $130bn-$156bn between October this year and September 2022 to CGBs upon the WGBI inclusion.

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In a separate announcement, FTSE Russell said Xiaomi Corp should be eligible for re-inclusion in its indices from June 21, after a US court temporarily blocked a government ban on US investments in the company. Xiaomi was deleted from the FTSE indices last week.

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China Mobile has held talks with advisers regarding a potential A-share listing after it was removed from the New York Stock Exchange earlier this year, Bloomberg reported, citing people familiar with the matter. The company is looking for new avenues to fund its 5G network development, but the discussions “are at an early stage” and the size and listing timeline have yet to be decided, said the wire. China Mobile is set to publish its 2020 earnings next Thursday.

The report came as another Chinese telecom giant that was also delisted from the US, China Telecom Corp, said last week that it will seek to list on the mainboard of the Shanghai Stock Exchange. In a Wednesday filing in Hong Kong, China Telecom reaffirmed its plan of issuing up to 12.1bn shares, equal to 13% of its enlarged share capital pre-greenshoe. The board will be seeking approval for the A-share listing at an April 9 shareholder meeting.

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Luckin Coffee said on Tuesday that it has entered a restructuring agreement with investors holding 59% of its $460m 0.75% 2025 convertible bond. The restructuring will allow the Nasdaq-delisted company to “comprehensively address its capital structure and better position it for long-term success”. The move is expected to lead to a recovery of 91%-96% for the CB holders.

The company said it had about $775m of unrestricted cash by the end of February, and that it is “pursuing alternative funding solutions from external investment sources”. It has held “exclusive discussions” for an equity deal with “a credible investor” to raise at least $250m through a private placement, Luckin said.

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The Hainan High People’s Court on Monday approved the merger and restructuring of HNA Group Co and 320 affiliated companies. Creditors of the 321 firms have been told to declare their claims by May 20.

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The renminbi remained the fifth most actively used currency in global payments in February, though the percentage of global payments (by value) denominated in the currency declined to 2.2% from 2.42% in January, according to Swift.

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